In this fast-paced market, a lot can change in a hurry — unrest in the Middle East, consumer sentiment flashing strength one minute and weakness the next, and of course big-name stocks that are moving up and down on the headlines.
But one thing that never changes is the power of a long-term investing strategy based on high-yield dividend stocks. Thanks to a steady stream of income provided by regular and growing dividend payments, investors can be guaranteed some kind of cash, even if the markets hit a rough spot. And coupled with a rock-solid business that isn’t going away, these investments always withstand the market’s ups and downs over the long haul.
If you’re looking high-yield dividend stocks to both protect you from near-term volatility and grow your retirement nest egg long-term, then consider these five investments:
DuPont (DD) is hardly a sexy stock, providing chemicals to businesses across a host of industries — from healthcare to manufacturing to agriculture. But the performance of DD stock in 2013 shows this high-yield dividend stock is going strong.
The diversified nature of DuPont helps insulate it from volatility because it serves so many different segments of the economy, both at home in the U.S. and in overseas market. With a $55 billion market cap and almost $5 billion in operating cash flow, DuPont is a very stable and reliable business.
And when it comes to dividends, DD has paid back shareholders since 1904 and enjoys a dividend payout ratio of less than 50% of FY2013 earnings. That means not only will you be almost guaranteed a dividend payout for years to come, but you also have a good chance of continued increases in those dividends.
Exxon Mobil (XOM) has admittedly had a soft 2013 thus far, but bigger-picture, this energy giant is as solid a stock as they come.
Just consider the size and scale of Exxon. It has a market capitalization of over $383 billion, annual operating cash flow that tops $56 billion and more than $40 billion in cash and long-term investments. Quite a firm foundation!
As for dividends, XOM’s payout is a respectable 2.8% but a paltry 33% of fiscal 2013 earnings. That means the dividends are easily sustainable even if times get tougher, and that payout can comfortably move higher. Consider that Exxon has boosted its dividend payouts 150% in the past 10 years, from 25 cents a quarter in 2003 to 63 cents currently.
Admittedly, the energy biz is very cyclical and it’s unlikely to see big share appreciation in XOM without a firm global recovery. However, long-term dividend investors might want to stake out a position in this energy megacap both for the current dividend and the hopes of much higher dividends in the years ahead.
Public Service Enterprise Group
Among stable dividend picks, utility stocks are one of the preferred sectors. And boasting a nice 4.4% dividend yield, the mid-Atlantic utility Public Service Enterprise Group (PEG) is a lesser-known but very attractive play in this space.
Consider that right now, the stock has a beta of less than 0.2 — meaning it moves much slower than the rest of the market in either direction. Detractors warn that utilities will never set off the fireworks with a breakout week or month, but if you’re a low-risk dividend investor, this is a big plus and not a weakness. Should the market somehow hit a major snag, PEG will stay much more stable than other picks.
Also, despite its big yield, the payout ratio for PEG is less than 60% of projected fiscal 2013 earnings. This is the mandate not just for sustained dividends, but growing payouts, too.
The icing on the cake is that utility stocks like PEG are virtual monopolies in their geographic region and highly regulated, which prevents disruption to their business. Considering the strong baseline demand and the lack of competition, you can’t get more low-risk than a utility like Public Service Enterprise.
Procter & Gamble
Procter & Gamble (PG) is tracking the market in 2013, though it’s worth noting that the stock has gone nowhere for a few months as investors got more “risk-on” in the spring and summer, then more recently activist investor Bill Ackman dumped a majority of shares in August as the Wall Street party started to lose steam in general.
But long-term investors should rest comfortably knowing P&G boasts a bulletproof lineup of consumer products that include Duracell batteries, Gillette razors, Head & Shoulders shampoo and Pampers diapers among other goods.
And if you’re worried about a consumer downturn in the second half as the housing market cools off and economic indicators get murky, PG stock is a great take to place shelter. Staples like personal care products are recession-proof and will remain in demand even if discretionary spending rolls back.
Throw in the fact that the stock yields more than 3% and has paid dividends since 1891, and you’ve got a recipe for a buy-and-hold gem.
Among the Big Pharma players out there, Eli Lilly (LLY) is one of the most attractive from an income perspective. It boasts a juicy 3.7% yield, better than either Pfizer (PFE) or Merck (MRK) but also a very low payout ratio.
And like the aforementioned P&G, health care and drugmakers are recession-proof as well, since patients will cut back on many other expenses before they skimp on medication that affects the quality of their lives.
And with the Affordable Care Act on the way, more folks are going to have access to doctors and medicine to help provide more “customers” to Lilly in the years ahead.
Lilly dividends currently are on track to tally less than half fiscal 2013 earnings forecasts. And beyond that, the company boasts $11.3 billion in cash and long-term investments.
Eli Lilly has paid dividends in some form since 1885. Although the dividend hasn’t been increased since 2009, the wiggle room in the payout ratio hints that at worst, the current rate is sustainable and at best, some increases might be around the corner.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.